ISA Allowances: Rules, Deadlines, and Myths
ISAs are one of the simplest and most generous ways to save and invest tax-free in the UK. But their rules change slightly each year — and the myths spread faster than the facts.
1) What’s the ISA Allowance?
For the 2024/25 tax year, the overall ISA allowance is £20,000. This is the total you can pay across all your ISAs between 6 April 2024 and 5 April 2025 — not per account.
You can split this across different ISA types however you like. For example:
- £10,000 in a Cash ISA
- £6,000 in a Stocks & Shares ISA
- £4,000 in a Lifetime ISA (LISA)
As long as the total stays within £20,000, you’re fine. Junior ISAs (JISAs) have their own £9,000 annual limit.
2) ISA Types Explained
| Type | Best for | Key features |
|---|---|---|
| Cash ISA | Savers | Interest is tax-free; can be instant access or fixed term. |
| Stocks & Shares ISA | Investors | Capital gains and dividends are tax-free; values can fall as well as rise. |
| Lifetime ISA (LISA) | First-time buyers / retirement | £4,000/year limit, 25% government bonus, but withdrawal penalties if used early. |
| Innovative Finance ISA (IFISA) | Peer-to-peer lending | Higher risk; loans to individuals or small firms. |
3) Common Myths Debunked
- Myth: “You can only have one ISA.”
Fact: You can have multiple ISAs — even of the same type — as long as you don’t pay into more than one of each type in the same tax year (some platforms now allow multiple via ‘flexible ISA’ structures). - Myth: “If you withdraw, you lose that allowance.”
Fact: With a flexible ISA, you can withdraw and redeposit within the same tax year without losing allowance. Not all ISAs offer this feature. - Myth: “You pay tax when you transfer ISAs.”
Fact: Transfers between providers are tax-free, as long as done via the official transfer process (don’t withdraw and redeposit manually).
4) How ISA Transfers Work
If you find a better rate or want to switch from Cash to Stocks & Shares (or vice versa), request an official ISA transfer through the new provider. Never withdraw funds yourself — that risks losing the tax-free wrapper.
Transfers can be full or partial. Cash ISAs usually move in days; Stocks & Shares ISAs can take up to a few weeks depending on holdings.
5) What Happens After the Tax Year Ends?
Each new tax year (from 6 April) gives you a fresh £20,000 allowance. Unused allowance from the previous year can’t be carried forward — it’s a “use it or lose it” system. Your existing ISA savings remain tax-free indefinitely.
6) Cash vs Stocks & Shares — Which Is Better?
- Cash ISAs: Low risk, stable returns — ideal for short-term goals and emergency funds.
- Stocks & Shares ISAs: Potentially higher long-term growth, but riskier. Best for 5+ year horizons.
It’s often smart to keep some cash for flexibility and invest the rest for long-term goals.
7) Lifetime ISA Notes
The Lifetime ISA adds a 25% government bonus on contributions up to £4,000 per year. You must be aged 18–39 to open one, and you can use it either for a first home or after age 60. Early withdrawals for other reasons lose the bonus and incur a penalty.
8) Quick Tips to Maximise ISA Benefits
- Start early in the tax year — more time to earn tax-free returns.
- Shop around for the best Cash ISA rates each April.
- Keep old ISAs open; they stay tax-free even if you switch provider later.
- Use Stocks & Shares ISAs for long-term investing and Cash ISAs for short-term needs.
9) Key Takeaways
- 2024/25 allowance: £20,000.
- You can mix ISA types, but only pay into one of each type per year.
- Use flexible ISAs for easy withdrawals and re-deposits.
- Transfers are tax-free if done properly — never withdraw manually.